With the new financial year in full swing, now is the opportune moment to pause and reassess your personal finances. It’s one of those tasks you’ve probably been putting off, especially amidst the surge in the cost of living; it can be a daunting chore but is absolutely crucial.
Life changes, so it’s vital to consider whether the financial plans you made even just a couple of years ago, are still relevant. Spring is the season to revisit your goals and think about your long-term objectives, so comb through your bank statements, pinpoint where your money is going, and identify where savings can be made.
If you find yourself with surplus income, it’s beneficial to consider how much could go towards your savings goals each month, and where the savings should be deposited.
What’s new for the 2024/2025 financial year?
From the 6th of April, ISA allowances reset at £20k. But the annual allowance for pensions has remained at £60,000.
I’d encourage anyone to commit to saving a set amount each month and before you know it, it will become a habit which will set you on track to making the most of your ISA allowance.
Of course, new pension and tax allowances have been in place since April. While the personal tax allowance didn’t increase in the Spring Budget, the income limit for married couple’s allowance has increased from £34,600 to £37,000.
In addition to these changes, lifetime allowance has been abolished – this is one of the key thresholds governing how much you can pay into your pension, previously this was subject to a lifetime allowance charge. Now that it is no longer in existence, you can benefit from saving as much as you want into a pension without incurring a tax charge.
Planning for the future
For high earners in particular, planning early into the financial year is optimal, taking into consideration any career moves, salary changes or bonuses.
It’s a common theme that those on higher incomes budget and plan for their monthly outgoings but don’t always plan for the future, and as tempting as it is to spend every penny of your disposable income, I always advise clients to get into a good habit of saving as much as they can each month to make the most of tax allowances.
The same goes for bonuses. When you know that lump sum is on the way, think about setting aside an emergency fund for those unexpected expenses and then consider whether you can allocate some to your ISA or pension pot. I recommend aiming for an emergency fund which equates to around three to six months of your annual salary which can be used when needed and rebuilt again.
Retirement planning
In terms of pensions, there are many considerations to be made. For workplace pensions, are you maximising benefits from your employer’s contributions? How much of your expenses will your state pension cover?
The earlier you make plans for your retirement, the better. If you look forward to being able to retire but also want to maintain the same lifestyle as you do now, it’s essential to visit a financial planner ahead of your ideal retirement date.
Helping clients to visualise their financial future with our Lifetime Cash Flow Modelling is a key part of our financial planning offering. It can help to answer questions such as whether you will be able to retire earlier or at least reduce work commitments, and whether you can maintain your desired lifestyle in retirement.
Get in touch with Kelly today.